Technology is one of the most important factors for business success. Today, companies wouldn’t be able to get very far without the help of modern tech, especially considering the fact that almost every company operates online.
Technology helps companies become more productive and more efficient. In today’s online market, the efficiency and exceptional overall performance of companies are of the utmost importance. If your company isn’t performing well enough, your competitors will soon outrun you completely.
That’s why so many business owners look towards technology for assistance. However, modern technology isn’t cheap, and you need a really good investment to get your hands on the most reliable tech. But how can you guarantee that technology will actually help you?
After all, you’re looking for a better return on investment (ROI). You actually need for your investment to be worthwhile so that your business will become more profitable.
Although technology can help a business in many ways, you have to be sure that you’re investing in the right kind of technology for your business. Not every piece of tech will help you out, so you have to be smart about it.
With that in mind, here are a few ways to calculate, measure and improve ROI on IT investments.
Considering the investment
Investing in IT often requires quite a budget. The fact of the matter is that you’re not investing just in the technology itself. You have to invest in education and training for your employees so that they can utilize that technology in the best way possible.
Moreover, you’re investing in the infrastructure and hardware required to support that technology. Last but not least, you have to pay for the maintenance of that technology.
After all, tech is not indestructible, and it will break down eventually. Therefore, the initial investment is never just the cost of technology you want to adopt.
That said, the ROI of this investment has to be significant enough to exceed all the expenses and yield profits for your business. Now, this can happen in more ways the one. Here are a few examples of calculating ROI.
- Up-sell revenue – Your IT investment allows you to create a new product or service that generates revenue over time.
- Cost reduction – You can reduce costs for one or more business operations. For example, reducing costs on travel expenses by leveraging video conferencing for meetings.
- Cost elimination – Instead of simply reducing costs, you eliminate them completely. For example, you can eliminate maintenance costs for in-house hardware by switching to cloud computing.
- Capital reduction and elimination – Same as cost reduction and elimination only for capital expenses.
For any IT investment, you can calculate ROI using a simple equation: ROI = (Cost – Gain) / Cost. You can use this calculation for any investment, not just the IT ones, and you’ll be able to keep track effectively.
Companies use various metrics and KPIs to generate reports regarding numerous efforts ranging from marketing to sales and so on. The sheer quantity of information can be quite overwhelming. Measuring ROI for IT investments can be next to impossible amidst all that confusion.
Fortunately, using the proper information management software can solve that issue quite effectively. It allows you to focus on the specific information you want to measure or track. However, even then, it’s difficult to identify IT investment ROI.
The main reason is that technology doesn’t directly impact your company’s bottom line except in cases where it helps you develop a new product or service so you can measure ROI from sales.
In most cases, it’s a soft impact that’s not quantifiable, such as higher customer engagement and satisfaction, improved customer service and support, better usability and so on.
These factors can have a positive effect on your company’s bottom line, but you can’t really measure just how precisely they’re doing so.
For example, investing in new communication software for your sales team will improve their efficiency and productivity. They’ll be able to handle more customers during the day.
As a result, you’ll favor more conversions, but you can’t know for sure whether that’s because of the new software or because the customers like the sales rep.
Either way, measuring IT investment ROI comes down to companies deciding how the investment impacts their revenue.
Improving IT investment ROI
Improving ROI for IT investments comes down to choosing the right technology to invest in. As mentioned before, not all technology is useful to your business. You may invest in tech that will be completely useless to your company, so it will be just another expense you cannot profit from.
Even if you sell it afterward, you might break even at best. So how does one decide which technology is right for them? There’s no simple answer to that question, but there are some things you can consider. Here are a few examples.
- Determine your business needs – Which aspects of your business could use improvements that technology can provide?
- Consider the risk factors – If something goes wrong, will you see a positive outcome or not?
- The impact of technology – IT investments usually have a more significant impact than it seems. It may affect customers, multiple departments, company processes and so on. Consider which technology will have the biggest impact and whether it will be a positive or negative one.
- Technology adaptation – Some tech doesn’t require any significant organizational changes to be implemented. Other tech requires adaptation and getting used to. Which solution is better for your company?
The more focused your investment is on actual business goals, the better the ROI it will generate over time.
When to expect ROI?
ROI is a tricky thing, especially ROI for IT investments. As mentioned before, sometimes, you simply cannot measure your ROI effectively.
But when should you expect to see any ROI at all? That depends on the type of investment you’ve made.
For example, some IT investments may cost you a lot to implement. This can go anywhere from several tenths of thousands to millions of dollars. That said, you may not see a positive ROI for several years.
This can be quite stressful for a lot of business owners. After all, you’ve just spent a lot of money, and you won’t know whether it turned out to be a good investment for years to come.
That’s why it’s important to consider your options.
For example, experts advise focusing on investments that emphasize VOI (Value of Investment) instead of ROI. The main reason is that these types of investments improve the so-called “soft” benefits or the ones you can’t directly measure.
These soft benefits are arguably more important as they slightly improve every aspect of your business, allowing you to boost profitability through other efforts, such as marketing, for instance. In the end, the choice is up to you to make.
IT investments are very important for companies that rely on technology to operate. However, such investments, although expensive, can be really beneficial.
The only problem is that it’s difficult to track just how such investments benefit your business. That’s why measuring, calculating and improving ROI on IT investments requires a lot of effort.